Your credit history is the foundation to financial stability. Some issues take time to sort out and can create a headache if you’re racing the clock to secure a loan. Create a “credit clean-up” project, and start working on your credit now, to give yourself the opportunity to strategize, get ahead of any issues right away, and make improvements on your own terms.
1. Analyze your credit report and score.
• In order to improve your financial state, you must first know what information your creditors are reporting to the credit reporting agencies. You can find this out by ordering a free copy of your credit report from annualcreditreport.com. You are entitled to one free credit report from each of the three national credit reporting agencies every 12 months.
• Make sure any negative information—such as late payments, collections, or bankruptcies—have fallen off your credit report after the appropriate amount of time.
• Make sure there are no inaccuracies. Errors in your credit report could mean that a credit company has not accurately reported your payments or that you’ve been a victim of identity theft. If you spot an error in your credit report, you can file a dispute—either online or by mail—with the credit reporting agency that reported the error. Once your dispute is filed, the credit reporting agency will investigate the issue within 30 days. The agency will notify you of the outcome after the conclusion of the investigation. TIP: Remember to file away any communications you’ve had with the credit reporting agencies about disputes or errors or about statements you’d like added to your credit report.
2. Start paying smaller items first. Debt won’t go away on its own, and you have to start somewhere, right? The process of consistently chipping away, bits at a time, may take months. The key is to be patient and work little by little, creating and then achieving small goals. Your efforts will definitely add up! Knocking out some debt could reflect positively on both your credit report and credit score. “If you have any late payments or accounts in collections, create a budget that will help you pay off the debt as soon as possible. By paying down your debt, you will open up your available credit, which you can then use responsibly to add positive information 4to your credit report,” advises Ilyce Glink, author of the bestselling book ‘100 Questions Every First-Time Home Buyer Should Ask’. This information can, in turn, positively affect your credit score.
3. Strategize your expenditures.
• Your big-ticket expenditures should work in harmony with your credit clean-up plan. For example, if planning for a new car, try leasing instead of buying, which may affect your credit score faster and have a greater impact.
• Know what you’re trying to qualify for, its purpose, and how much you need. For example, if your goal is to buy a home, you’ll need to analyze not just your credit as it stands alone, but how it fits into your whole financial picture. It would also be in your best interest to create a plan that supports the qualifications that home lenders are looking for. This includes knowing what NOT to buy while you’re preparing for your home purchase or while you’re engaged in the home-buying process (Read: ‘Want a Smooth Closing? Avoid These 6 Things).
All in all, working to clean up your credit may seem like a daunting proposition. For the best results, break up your credit repair project into smaller, more manageable tasks, and just take it one day (and decision) at a time.
Sources: blog.equifax.com; bankrate.com; suntrust.com
